Global rally carries Mexico peso to 5-year high

(Recasts; adds closing prices)

MEXICO CITY, July 16 (Reuters) - Mexico's peso jumped on Wednesday and stocks rallied as lower oil prices eased concerns about the U.S. economy, while bonds surged as investors pared bets the central bank would aggressively hike interest rates this year.

The peso <MXN=> MEX01 firmed 0.44 percent to 10.2485 per dollar, its strongest level since May 2003, at the central bank's final 1:30 p.m. (1830 GMT) reference. The currency went on to firm more than another two centavos to 10.225 per dollar.

The benchmark IPC stock index .MXX gained for the first time in six sessions, closing 1.94 percent higher at 27,768.82 points.

A more than $4 decline in U.S. crude prices CLc1 eased fears that high fuel costs will hit consumer spending and further weaken the U.S. economy.

That, combined with stronger-than-expected earnings at U.S. bank Wells Fargo & Co (WFC.N: Quote, Profile, Research), helped stocks recover after a week of losses amid worries about the health of U.S. financial institutions.

"There is a better environment in international markets and this is helping the peso gain," said Rafael Camarena, an economist at Santander in Mexico City.

Many economists expect Mexico's central bank to raise its benchmark overnight rate by a quarter percentage point to 8 percent on Friday to fight rising inflation.

That would push the spread between U.S. and Mexican benchmark interest rates to 6 percentage points, making peso-denominated assets more attractive to investors.